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Mumbai: The RBI has said that banks must allow premature withdrawals on all term deposits up to Rs 1 crore. The central bank has hiked the minimum limit for ‘non-callable’ fixed deposits to Rs 1 crore from Rs 15 lakhs earlier.

The banking regulator had earlier allowed lenders to offer higher rates on unbreakable fixed deposits that could not be withdrawn before maturity. Banks are incentivised to offer higher deposit rates without a pre-mature withdrawal facility during a rising interest rate regime. Non-callable deposits prevent customers from withdrawing their money mid-term if interest rates rise. For customers, the incentive to invest in illiquid, non-callable deposits is that these schemes offer a slightly higher rate.

Bankers feel that the objective of hiking the minimum size of deposits on non-callable deposits is to protect small investors. Banks offer a return that is 25 to 30 basis points higher on non-callable FDs. The return is higher for deposits of higher value.

In a separate notification, RBI has also hiked the bulk deposit limit for rural banks to Rs 1 crore from Rs 1 lakh. This means that banks can offer differential rates only on deposits above Rs 1 crore.

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RBI: Allow premature withdrawal of depositsThe Reserve Bank of India (RBI) has increased the minimum limit for ‘non-callable’ fixed deposits to Rs 1 crore from Rs 15 lakhs. This means that banks must allow pre-mature withdrawals on all bank deposits up to Rs 1 crore. The objective behind this move is to protect small investors. Banks can offer higher deposit rates without a pre-mature withdrawal facility, which is incentivized during a rising interest rate regime. Additionally, the RBI has raised the bulk deposit limit for rural banks to Rs 1 crore from Rs 1 lakh.

FD rule change: Now, premature withdrawal allowed on fixed deposits up to Rs 1 crore; applies to NRE & NRO deposits tooThe Reserve Bank of India (RBI) has increased the minimum amount for non-callable fixed deposits (FDs) to Rs 1 crore. This means that customers can now withdraw money prematurely from FDs up to Rs 1 crore. Previously, only FDs up to Rs 15 lakh had this option. Non-callable FDs typically offer higher interest rates but do not allow premature withdrawals until the tenure is completed. The change benefits individual investors and applies to both domestic and non-resident deposits. The RBI has also increased the bulk deposit limit for regional rural banks to Rs 1 crore.

Banks tap business, rework plan to raise low-cost depositsThe Centre’s “just-in-time” mechanism for releasing money to government agencies has led to public sector banks losing out on low-cost current and savings account float. State Bank of India (SBI) has activated the SME and trade segments to raise more current account deposits. SBI chairman Dinesh Khara stated that they have been reaching out to trade and industry to attract their deposits. The finance ministry is now insisting that government agencies should not seek funds until they have exhausted the balance in their accounts. The Public Financial Management System (PFMS) has also been made more foolproof to prevent transfers to other accounts.